Unemployment, GDP and CO2 emissions: New theoretical foundations and mathematical tools for the analysis of the environmental Phillips curve

The theoretical and empirical foundations of the environmental Phillips curve, namely, the inverse relationship between air pollution and unemployment, remain unclear. In this manuscript, the authors use an original model to demonstrate that two alternative specifications of such a curve are possible, namely, the difference version (that comprises the first differences of the variables of interest) and the gap version (that includes the difference of the unemployment rate and emissions of CO2 from their respective equilibrium values). The regression analysis conducted on US time-series proves that, thanks to its ability of taking into account the business cycle fluctuations, the gap version outperforms its difference counterpart. Appropriate policy recommendations are provided and discussed.